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“Oversupply” of developers… Bad?

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When the market has an oversupply of properties, it will be bad for property prices. Theoretically, prices will fall when supply exceeds demand tremendously. I say tremendously because if the supply is just slightly more than demand, as long as there was little speculation in the first place, prices will stay stagnant while waiting for demand growth to exceed supply again in the near future.

This oversupply of properties. Does it happen because there were too many property developers? Since everyone is simply building and building, it should add up to the numbers and soon there will be an oversupply? Okay, it’s not as simple as that but there’s one managing director and CEO of a prominent developer who said that there are too many listed developers here in Malaysia. It’s not a good situation to be in according to him.

Article in nst.com.my UEM Sunrise managing director and chief executive officer Anwar Syahrin Abdul Ajib said, “If I put myself as an observer, and not the CEO of this company, it (consolidation) should happen. We have too many (listed property players). I think there are about 100-plus.” He also said the following:

“For example, within The Edge property awards this year, there are many (listed) real estate players there. The awards received over 50 submissions this year.”

“The good thing is that everybody is passionate (about) this industry and people are benefitting from it. We all benefit with beautiful townships, nice designs and so forth. All of these are good but sustainability is not there. The government should really look back before they can easily give Housing Developers Licence and Sale and Advertising Permit to a developer. Because if not, we will be killing each other eventually.” More here: Article in nst.com.my

Anwar did not say what’s the ideal number of developers but I guess there’s no such thing as an ideal number. I personally believe that property development should NOT be concentrated into the hands of just a few major developers. If one day it becomes as such (just a few developers left), the choices where location, size and design may become much more limited. It will be easier for these few developers to control the market to some extent too. I do not think this is something which the buyers or the government wants.

Competition will always be key to price and quality competitiveness. However, the government must REALLY have better control in the quantity of new homes being constructed. It will be much more prudent to get the developers to really do a survey and understand the market before it starts building, even if the developer has deep pockets and could start construction even if it had sold just half of all the units… Let’s have a healthy market shall we?

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Next suggested article:  How high is the profit margin for developers? Very high?

Featured image Photo by Magda Ehlers from Pexels

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